My *COD* these IB margin requirements!

S

Saltynuts

So, I have an account with 2.5x in it.

I have .825x of this holding positions, a good bit of which is short volatility products. I know, risky. But this is a margin account, and not only am I not above my investment amount, but of my cash in there, I'm only using 33% of it to hold positions - 64% is literally sitting to the side, uninvested.

So, I wanted to take .5x out to set up a separate account in my and my wife's name as we get better account insurance protection that way. So I look at my available funds, thinking it would be huge, and its only roughly .7x. So, let's say I took out .7x. My funds still in the account would be 1.8x. So I would hold 46% of my account in positions (.825/1.8), so 54% of my account in cash. And literally if my positions moved against me by the smallest amount I would be facing margin calls, despite the fact that I am not even close to being 100% invested (much less using margin to leverage over 100% invested), only 46% invested!??!

I know that there are special margin requirements for these short volatility positions, but I've also read that IB has nutty margin requirements.

So, question. I asked a few months ago if any brokers could beat, or were equal to, IB in like stock/futures/options prices/margin borrowing rates, and the response I got was generally, no. So, new question - can any brokers get anywhere in the same neighborhood, but have more reasonable margin requirements? This seems insane. If this is some federally mandated requirement, I will understand. But I don't think so given the complaints I've read on here about IB margin requirements over several months at least.

Thanks ladies and gents!
 
Your account is only insured 250k cash and 250k securities if i recall, and thats in an event that IB goes bankrupt. Have you looked at their balance sheet? Im sure this bankruptcy event you are hedging by creating multiple brokerage accounts will unlikely happen and mainly bc they are stricter on their margins than other brokerage companies. To me... as an IB customer, im thankful. Seek the other brokerage companies that are looser with their margins and you have a self fulfilling prophecy and you might actually need that sipc.
 
What you could do, if you're afraid of IB bankruptcy and have a large amount in account with them... is open another options trading account, different broker... and buy far OTM puts on IB as an insurance. Something that pays out your account size if IB drops 80%...

Is something some firms do as well. I think someone really cleaned up during GFC when Lehman or Bear Stearns went down, and they had puts for that reason.

EDIT. Just had a look... not much out there in those puts. You'd have to roll them too often and that will start being quite costly I guess.
 
FSU said:
I'm confused how you get better protection splitting the account. SIPC covers up to $500,000.
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SIPC protection (250K cash, 250K securities) is based on "separate capacity". Explanation and examples in link. OP wants to >> set up a separate account in my and my wife's name <<

https://www.sipc.org/for-investors/investors-with-multiple-accounts

FDIC insurance is different in that each account held by an owner/co-owner at the same institution are combined.

https://www.fdic.gov/deposit/covered/categories.html


No where in the OPs post did I see any mention of fear of IB going under. Only an interest in better margining. Rightfully so, IMO.
 
tiddlywinks said:
No where in the OPs post did I see any mention of fear of IB going under. Only an interest in better margining. Rightfully so, IMO.
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He wants to split it because of better account protection... "as we get better account insurance protection that way"... which would be in case the broker fails. What for do you need account protection otherwise?
 
JackRab said:
He wants to split it because of better account protection... "as we get better account insurance protection that way"... which would be in case the broker fails. What for do you need account protection otherwise?
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Or maybe he has more than 500K, in which case opening a joint account gives SIPC protection up to another 500K, aka, better insurance protection. That's merely the Prudent Man Principle if you ask me. Far different from I think the sky will fall!
 
tiddlywinks said:
Or maybe he has more than 500K, in which case opening a joint account gives SIPC protection up to another 500K, aka, better insurance protection. That's merely the Prudent Man Principle if you ask me. Far different from I think the sky will fall!
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The reason for SIPC is if your broker fails that you are insured for (some of the) account value...
I'm not talking about the sky falling.... but if IB fails, you would think that the stock price would go towards zero. Therefore, another possibility for protection beyond the standard SIPC is buying puts on your broker (obviously holding those puts in another brokerage).
 
So gents,

Yes, me opening another account is trying to get more protection - my understanding that if I have one account as IB in my name, and one in my and my wife's name, those are two separate accounts for relevant insurance programs, thus you wouldn't aggregate them for purposes of determining the insurance limits. If I'm wrong please let me know!

However, yea, this thread was not really about the insurance protection, I'm going to open at least one other account for that purpose, and I'm wondering if there are other brokers that are competitive with IB on commission and margin rates, but does not have these crazy margin requirements. I note my account value today is basically the same as yesterday (up slightly), but now I only have 27% of my account value in positions (down from 33%), yes did my available funds increase? HECK NO. They actually went DOWN from ~-.7 to ~.65x. Its insanity!

Thanks so much gents.
 
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